Businessweek Archives

Hit The Gas, Detroit. Japan Is Back

April 06, 1997

Editorials

HIT THE GAS, DETROIT. JAPAN IS BACK

Detroit likes to think that the recent success of Japanese auto makers in the U.S. is all due to the weak yen. Dream on. No doubt the relatively cheap yen vis-a-vis the dollar is helping. But the harsh truth is that a good deal of the gains in market share by the Japanese come from exciting new models and lower prices generated by painful cost-cutting. The unexpected benefit from the yen is just gravy.

Take Toyota Motor Corp. In 1997, its U.S. market share has zoomed to 8.6%, up 2% from last year, powered by hot sales of Camrys, Corollas, the RAV4 and 4Runner sport-utes, and the redesigned, entry-level Lexus ES 300. When the yen soared in the late 1980s, making its cars expensive overseas, Toyota undertook to remake itself so that it was profitable at 80 yen to 90 yen to the dollar. At 123, the frugality is paying off, and profits are soaring (page 104).

Detroit still is struggling to master that frugality. When the Japanese retreated from making over-engineered cars in the early '90s and began focusing on affordability, Detroit struggled to match those moves. The result? The Big Three are now forced to offer cash rebates and subsidized leases on many cars to compete--slashing into profit margins. Detroit has another problem. Truck-love. Detroit has obsessed on sport-ute vehicles, minivans, and pickup trucks--and the fat profits these gas-guzzlers generate--to the detriment of cars. It assumed that consumer demand for sport-utes would grow for years, but demand is showing signs of leveling off and the Japanese are piling into the market.

Toyota's new president, Hiroshi Okuda, is less worried about U.S.-Japan trade tensions than gaining market share. There even is talk of Toyota taking up to 15% of the global auto market, up from its current 9.5% share. With capacity already glutted, Okuda can reach his targets only by taking market share away from competitors. He intends to do just that. Detroit knows what it has to do. Just do it.